Calculate the carrying amount of the equipment

Reference no: EM132376666

Assignment

Question 1

Pringles Ltd is a large department store that has used the straight-line depreciation method since the company was first formed. For the year ended 30 June 2015, the company made a record profit and management expected these high profits to continue at least into 2016 and 2017, although economists were generally predicting an economic slowdown and a subsequent fall in profits in 2018 and 2019.

The general manager, Peter Pringle, approached the accountant, Marion Mason, and asked her if she could find a way to reduce the profit in the next couple of years and transfer it to 2018 and 2019 when things may not be going so well. ‘This would give us consistent profits over the next few years and keep our shareholders happy,' said Peter.

Although Marion did not feel that Peter's reason for the change was justified, she was concerned that her contract with the company would not be renewed if she upset the general manager. After some consideration, Marion decided to change the depreciation method from the straight-line method to the sum- of-years'-digits method. Marion did not disclose this change in the notes to the financial statements as she felt that the reason given by Peter would not give a good impression.

Required

A. Who are the stakeholders in this situation?

B. What ethical issues, if any, arise in this situation?

C. How does the change in accounting methods by Marion meet the objectives set out by Peter?

D. Do Marion's actions comply with the requirements of IAS 16/AASB 116?

Question 2

Star Ltd purchased new equipment for $60 000 net of GST on 2 July 2015. The equipment was expected to have a $10 000 residual value at the end of its 8-year useful life. Straight-line depreciation has been recorded. While reviewing the accounts in anticipation of adjusting them for the annual financial reports for the year ended 30 June 2018, Star Ltd decided that the useful life of the equipment should be extended by 2 years, and that the residual value should be revised to $6000.

Required

A. Give the general journal entry to record depreciation expense on the equipment for the year ended 30 June 2018.

B. Calculate the carrying amount of the equipment at 30 June 2018.

Reference no: EM132376666

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